Horizontal search engines like Google and Bing have become the Internet's gatekeepers, and thecrucial role they play in directing users to websites means that most Internet-based businesses nowrely on search engines for a substantial proportion of their traffic and revenues. Google's

overwhelming global dominance of horizontal search

means that, for most websites, this

amounts toan uncomfortable but unavoidablereliance

on Google.Even

the Web’sbest-known and mostestablished brands, such as Amazon,wouldbe

placed injeopardyif

Googlewereto systematicallyexclude them from its search results.

By manipulating its search results and ad listings in ways that demote its competitors’ services whilepromoting its own, Google can exploit its gatekeeperstatus

tocommandeer

a substantial proportionof the traffic ofalmost

any websiteor industry sectorit chooses.

Because Google has beenoverwhelmingly dominant in both

horizontal searchand search advertising

for several years, the

natural market forces of healthy competitionthat would normallyconstrain or moderatesuch

anti-competitive practices

have not been in play.Regrettably, there is little hope of thissituationchanging any time soon.

Vertical Search Is an

Important

Strategic Target for Google

Despite Google's wide and expanding diversity of interests, around 95% ofitsrevenues still comedirectly from search advertising (the sponsored links you see around Google's search results and onother websites).Google's revenues have grown at a phenomenal rate over the last ten years, butthis growth has beenbroadly in line withthat of

Because vertical search isinherently contextual, it provides a more targeted search and advertising channel than horizontalsearch.More targeted advertising channels are more attractive to advertisers

and therefore

provide

Page2

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someof the industry's

greatest opportunities for growth. This

makesvertical search a primestrategic target for Google.

But the various technical challenges of vertical search are very different from those of horizontalsearch;

expertise in onedoes

not necessarily

provide

an advantage in the other.To date,Googledoes not have a

particularlystrong track record of innovation in vertical search.

Bait and Switch?

Before Google’s need for growth compelled it to look beyond horizontal search it could focus onfulfilling its promise to provide the best possible search results for its users, even though that usuallymeant steering them to other people’s websites as quickly as possible.

But Google’s priorities havechanged,and there is now a growing chasm between the enduringpublic perception of Google as comprehensive and unbiased and the reality that it is increasinglyneither.Thisrift

is reflected inchangesGoogle

has made to itspublished

statements in recent years.The changes often transform the statements from clear and reassuring to nebulous and potentiallyworrying, suggestinga company struggling to come to terms with

new and less palatableobjectives.Googleseems

understandablyreluctant toretract

many of the

reassuring promises on which itforged its monopoly and reputation.

Formany

years,

for example,

Google proudlyproclaimed

its fundamental mission

as a search engine:to deliver users as quickly and efficiently as possible to

the

other

websites withtheinformation,products, and servicesthey

wereseeking:

“Google may be the only company in the world whose stated goal is to have users leave itswebsite

as quickly as possible.”

Google Philosophy

item 3, prior to September 2009

How efficiently a search engine can deliver users to other people’s websites is, of course, a keyperformanceindicator

for any search service. But, startingaround

2005, Google began to develop a

significantconflicting interest:

to steer users,

not toother

people’s services,

buttoits own

growingstable ofcompeting services

(vertical search and others).

Presumably,

Google then faced a dilemma. One of its core mission statements was no longer true.Eventually, in September 2009, Google changed item 3 of its Philosophy to read:

“We may be the only people in the world who can say our goal is to have people leave ourhomepage

as quickly as possible.”

Google Philosophy

item 3,after

September 2009

With this subtle change,

from “website” to “homepage", Google appears tobequietly

relinquishing

its

role as an unbiased search engine. The notion that Google might be “the only people in theworld” wanting to get users off their homepage as quickly as possible is, of course,

absurd. Of the14.5 billion websites currently in existence, only a handful would not share this un-ambitious aim.It’sequivalent to a retailer claiming to be the only store in the world who can say its

goal is to getcustomers

beyond its shop window and

through

its

front door.

In September 2010,

approximatelya

year after Google made this

subtle change,ProfessorEricGoldman

noticed

thenew wording

andblogged about

itsominousimplications.GooglerespondedPage3

of14

that it was merely

“a small editing change”

made“unconsciously by a proofreader” and thatthe text

wouldbechanged

“back to'website', as it should be”.

But, no sooner hadit been

reported

that,

"as promised,the wording on Google’s Our Philosophy

page has been changed back to 'website'”,

than

Google changed it back again to'homepage'.

As ofOctober 26 2010 (the next available archived snapshot of the page),

the statement read“homepage” again, as it continues to do today1:

“We may be the only people in the world who can say our goal is to have people leave ourhomepage as quickly as possible.”

In another example,Google'sonline explanation of its search resultsused toread: "A site’s rankingin Google’s search resultsis automatically determinedby computer algorithms". But this was alteredin May 2007 to read:

"A site's ranking in Google's search resultsrelies heavily

on

computeralgorithms".

Similarly, where Google used to reassureits users

that "there is no human involvement ormanipulation of results”,

it now offers the considerably less reassuring "We have always taken apragmatic approach to help improve search quality".

Google's Conflict of Interest

Google seems to have been preparing for an expansion into vertical search since at least 2005.

Yet, itwas only in 2010 that Google finallyadmitted

publicly that it now counts vertical search servicesamong its primary competitors:

“We face competition from:

-

Traditional searchengines,

such as Yahoo! and Bing.

-

Vertical search engines

and e-commerce sites, such as...Kayak (travel queries), Monster.com(job queries), and Amazon.com and eBay (commerce). We compete with these sites because they,like us, are trying to attract users to their web sites to search for product or service information,and some users will navigate directly to those sites rather than go through Google...”

Google2009Annual Report, February 2010

1

April

2012

Update:

Soon

after

this

paper

was

published,

Google

once

again

changed

the

wording

of

its

mission

statement.

As

of

April

16

2012,

the

U.S.

version

of

the

statement

reads

"website",

while

the

UK

version

continues

to

read

"homepage".

Page4

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If we

lookcloselyatthe language

Googleused to announce

that it now views vertical search enginesas competitors,

we can see theseriousconflict of interest it poses.

Google

explains

that it nowcompetes with vertical search services

to attract users looking for information:

"...We compete with these sites becausethey, like us, are trying toattract users

to their web sitesto search for product or service information..."

With these words, Google isconceding

that it now competes withvertical search

services for thevery thing that these services

aresubstantially

reliant on Google for—attracting users.In otherwords, Google is now choosing to compete with vertical search services for users, while beinguniquely placed todirectlydisrupt the ability of these services to reach those users.By manipulatingits search results and ad listings in ways that exclude or demote its competitors’ services,

whilesimultaneously promoting its own, Google canexploit its gatekeeper advantage tohijack asubstantial proportion of the traffic of pretty much any website it chooses.This power todirectly

cutoff a competitor’s access to customers is rare in competitive relationships, and it is thisfar reachingandprofoundly troubling conflict of interestthatlies at the heart ofFoundem'sEuropeanantitrustComplaint and the subsequent investigations

now

under way

in Europe and the US.

Google often uses

Facebook and Twitter as examples of "rivals" that have been able to thrive despiteGoogle’s monopoly.It

has chosen these examples carefully. Like horizontal search enginesthemselves, social networking services are one of theveryfew kinds of website that do not dependon horizontal search engines for a substantial proportion of their traffic. Both

horizontal search andsocial networking sites have to create their ownnetwork

if they are to succeed. Users don't go toGoogle in search of the social networking site they should use today; they go

to the one that theirfriends use. Similarly, users don't go to Google to find a horizontal search engine; they already madethat choice when they went to Google.

Google

Penalties:

Neutralising

Competitors

under thePretext

of Quality Control

Penalties Act Irrespective ofRelevance

All search enginesemployanever-evolving

variety of

penalties

to

manually or automaticallyeradicatespamsitesfrom their search results.

Because spam

sites

tend to masquerade ashighlyrelevant, these penaltiesact irrespective of relevance:

As another example, in August 2008 Foundem launched the world’s first price comparison servicefor motorcycle parts and accessories (in partnership withMCN, the UK’s leading MotorcycleMagazine). This substantial domain was unique to Foundem for

a significant period of time andprovided price comparisons fortens of thousands of

products that were not available anywhereelse. During Foundem’s 3-yearGooglesearch penalty (which lasted from June 2006 to December2009), Google

userswill have been

unwittingly denied access to price comparisons for theseproducts, even when specifically searching forthem:

Figure2: Two screenshots (From September 2009 and June 2010,

respectively) showing

Google

search results for the

query "compare prices shoei

xr-1000",a price-comparison-specific

query fora

niche product(a motorcycle helmet)forwhich Foundem

(for much of its penalty)

was the only truly relevant result.

Penalties

Targeted at Vertical Search

One of the first visible signs that Googlewas

preparing

the ground for an aggressive, anti-competitive

assault on vertical search came in2006,whenit

quietly

introduced

a new kind ofPage6

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algorithmic

search

penalty, targetedat sites witha "lack of original content"

and whose

"primarypurposeis

to drive traffic to other sites".

Although these characteristics describe a certain kind of spam site,

it is no coincidence that theyalsodescribeall

vertical search sites—the very services that Google was now preparing to compete with.

“Google denies it uses whitelists. Company spokesman Adam Kovacevich reiterated this denial onthe phone with The Register on Tuesday morning.” The Register,December

1 2010

But after Foundem produced emails

from Google, including one from September 2007 entitled"Update on Whitelisting", Google eventually abandoned these publicdenials:

“Google has admitted that it uses whitelists to manually override its search algorithms, more thana year after its European corporate counsel denied the existence of whitelists when defending thecompany against antitrust complaints in the EU...”,

The Register,March 11 2011

Another of Google’sdiversionary

strategies has been todeploy

spurious accusations specificallydesigned to sound damning to an audience unfamiliar with the mechanics of search:

“Since the primary purpose of [Foundem] is to drive traffic to other websites, the Quality Teamhas decided that the initial evaluation was not in error.”Email to Foundem from Google QualityTeam, August 24 2006

“Google has denied the claims, arguing that Foundem struggled in its search rankings because ofa lack of original content." The New Statesman,February 24 2010

"Google says it 'de-indexed' [Foundem] because much of its content–

about 87%–

was copiedfrom other sites..." The Guardian,November 30 2010

A site that copies 87% of its content from others, writes very little original content of its own, andonly exists to deliver users to other websites sounds terrible, but only until you realise that thesecarefully contrived slurs describeall

search services, including Google's own. All search servicesroutinely copy the content of the sites they search.

That is how search engines work. Of course, noone knows this better than Google. A search on Google is not a search of the Web; it is a search ofGoogle’s copy of the Web. And all of Google’s search result pages are comprised entirely of contentthat Google has copied from other sites. Google’s slurs are not just hypocrisy.They are

propagandadesigned to conceal a blatantly anti-competitive practice under the guise of quality control.

Tellingly, when the exact same accusations were levelled at Google by

KinderStart

in 2006, Googlequite rightly defended its role as a search engine by pointing out that a search engine’s uniqueselection, presentation, and ordering of search results is, in itself, original content:

Page8

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“According to KinderStart, Google’s search resultsfunction solely to link a user to third partywebsites

andcontain no original content. But Google’ssearch results are original content,expressing Google’s opinion of the relative significance of websites.”Google Attorneys, 2006

The Differencebetween

Established

andEmerging

Competitors

A search engine

cannot openly penaliseestablished

competitors without undermining its reputationas unbiased and comprehensive: users would notice the sudden disappearance of well-knownwebsites from their search results.Unfortunately,this is not the case

foremerging

websites andbrands, which

can be excluded without users noticing:

users can't miss what they don't yet knowabout.

Interestingly, inits

2009 Annual Report,

Google drew

a distinction between establishedandemerging competitors, noting that emerging start-ups are more likely to be able to out-innovateGoogle:

"Our current and potential competitors range from large and established companies to emergingstart-ups...

Emerging start-ups may be able to innovate and provide products and services fasterthan we can."

Google2009 Annual Report, February 2010

Thus, although,

individually,

start-ups poselittle

immediate threat

to Google,

collectively,as thecompaniesmost likely to innovate,

they posea significant

longer-term

threat.

The "next Google" is

far

more likely to emerge from an

agileandinnovative start-up, than fromacumbersome

and

less

flexibleincumbent.

Justeleven

days before Google's 2009 Annual Report was published,Foundem filed its EuropeanCompetition Complaint against Google, which highlightedthe

inevitable cost to

innovation

ofpolicies

that

arbitrarilyrewardincumbents

while

punishing

start-ups:

“Any policy that, inadvertently or otherwise, whitelistsestablished

sites while leavingemerging

sites penalised inevitablysuppresses innovation.”

Foundem's European Complaint, February 12010

Moreover,in

its

2008 Public Policy Blogpost arguing for network neutrality, Google

made

itabundantly clear thatit

recognises

the immenseanti-competitive

powerof

a gatekeeper intent oncutting fledgling companies

off fromtheir

users:

"...

innovation has thrived online because...new ideas and technologies...are allowed to succeedbased on their own merits and benefits. Somemajor broadband service providers have threatenedto act asgatekeepers,playing favorites

with particular applications or content providers…

It's nostretch to say thatsuch discriminatory practices

could haveprevented Google from getting offthe ground--

and they couldprevent the next Google from ever coming to be."

GooglePublicPolicy Blog, February 13 2008

Universal Search:

Neutralising

Competitorsunder

thePretextof UserConvenience

In a more innocent time,Google's Head of Search Quality,Matt Cutts,

said

the following:

Page9

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“At the core of the Google value system is the belief that the user experience matters most... andif Google makes no attempt to steer users to its own sites, a bond of trust will form”

"Google is undertaking the most radical change to its search results ever, introducing a 'UniversalSearch'

system that will blend listings from its news, video, images, local and book search enginesamong those it gathers from crawling web pages."

Danny Sullivan,Search Engine Land,

May 2007

Byshoehorning

prominent

links to Google's ownservices

intoits

users'

search results,UniversalSearch

is

transforming

Google’sostensibly neutralsearchengine

into

an immensely powerfulmarketing channel

for Google’sother

services.

Figure3:Two screenshots of Google search results where Google's "Universal Search" mechanism has "blended"prominent and eye-catching links to Google's own service into its search results. We have outlined these links to GoogleProduct Search (and Google News) in red.

Google uses different ranking algorithms and relevance signals to place its own services than it usesto place everyone else's, which gives Google absolute control over how aggressively andcomprehensively it chooses to commandeer any given vertical. Foundem'sempirical study

of theprice comparison vertical, for example, found that Google is exploiting this control to consistentlyplace its own price comparison service at or near the top of its search results for virtually all product-

“Some will argue that Google is itself so innovative that we needn’t worry. But the company isn’tas innovative as it is regularly given credit for. Google Maps, Google Earth, Google Groups,Google Docs,

Google Analytics, Android and many other Google products are all based ontechnology that Google has acquired rather than invented. Even AdWords and AdSense, thephenomenally efficient economic engines behind Google’s meteoric success, are essentiallyborrowed inventions: Google acquired AdSense by purchasing Applied Semantics in 2003; andAdWords, though developed by Google, is used under licence from its inventors, Overture.”

SearchBut You May Not Find,New York Times, December 2009

Panda:

EscalatingGoogle’sUndeclaredWar on Vertical Search

A detailed discussion ofGoogle’s

recent

updateto its algorithms, codenamed“Panda”,will have towait for anotherday, but,

inessence, Panda marks a significant escalation in Google’s

undeclaredwar on its vertical-search rivals.

So far, few have made a connection between Pandaand the

variousantitrust Investigations intoGoogle. But Panda isn't just relevant tothese investigations; it is central to them.

subtle than their predecessors: although affected sites do not completelydisappear from Google's search results, they are systematically demoted to a point beyond the reachof most users, andsoreceive little or no traffic

from this vital channel.

Where Foundem’s

EU

Complaint

reveals

Google’s smoking gun, we suggest that a detailed analysisof Panda and the events leading up to it willuncoverthe blueprintsofGoogle's anti-competitiveequivalent of a

WMD programme.

WhySo Few

OpenlyComplain

Whether they likeitor not, and most don't, companies the world over rely on Google for asubstantial proportion of their traffic and revenues.From small family-run businesses to large multi-Page11

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nationals, Google's

search results and ad listings typically account for between 50% and 90% of awebsite's traffic.

Given Google'sability to makeunannounced

changes that caninstantlydecimateany website's traffic

with the tweak of aconfiguration

file,it is sensible

for any businessto beextremelycautious about speaking out against Google.

You might expect that a site that has already been penalised would have nothing to lose by speakingout. But this is not the case. For a penalised site, a 50%, 60%, or even 90%reduction in traffic fromGoogle is better than risking a 100% reduction. And a penalty that lasts a week, a month, or even ayear is better than risking an indefinite one.

Since filing its EU Complaint, Foundem has spokento

a wide variety of companies throughoutEurope and the United States, many of which have already suffered from Google’s stranglehold ontheir business. From the very small to theverylarge,it is the

fear of reprisals

from

Googlethatprevents them

from speaking out

publicly.

The Super-Dominant Supermarket Analogy

Finding a real-world example that is broadly analogous to anoverwhelmingly dominant

globalsearchengine is difficult, which perhaps

explains

why itis taking

so long forthe

considerable dangers

ofGoogle’sunconstrained power

to befully understood.

The closest parallel to the competitive relationship between Google and its vertical search rivals maybe that of a supermarket whose own-brand products compete with branded products.

But, for thisto beeven roughly

comparable,

we would need to imagine a

supermarketasdominant

as Google

(inreality,no

supermarketenjoys

anything like this level of dominance).

Nonetheless,

there are enoughsimilarities between Google and

a super-dominant supermarket

to make the analogy worthwhile,despite fundamental differences between their business models.

Business Models

The business model of a supermarket is readily understood. Peoplevisit a

supermarket to buyproducts, and supermarkets make their money by selling those products. By contrast, the businessmodel of a search engine is not sostraightforward. Peoplevisit

beyond their search results to the surroundingadvertisements (sponsored links) and click

on one of them.

Because users only tend to look atsponsored links when their search results don’t have what they’re looking for, there is an inevitabletension between a search engine's need to produce good enoughsearchresults to attract and retainusers and its need toensure that the

results

are

bad enough that users regularly resort to clicking onsponsored links.

Others

have highlighted thisinherentconflict of

interest, including, most notably, Google’s ownfounders:

“The goals of the advertising business model do not always correspond to providing qualitysearch to users… advertising funded search engines will be inherently biased towards theadvertisers andaway from the needs of the consumers… Since it is very difficult even for expertsto evaluate search engines, search engine bias is particularly insidious…Furthermore,advertisingPage12

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income often provides an incentive to provide poor quality search results.”

Sergey Brinand

Larry Page,Anatomy of a Search Engine, 1998

In essence, a search engine’s business model is a numbers game:

for any page containing sponsoredlinks, on average, users will click on one or more of these links

a

certain percentage of the time.

Asearch engine can grow its revenues either by increasing this percentage

(perhaps by lowering thequalityand

relevance of its search results)or by increasing the average number of pages

containingads that each userviews

per visit.

For example,when

Google directs users

to its ownpricecomparison

service (whose

pages also contain sponsored links), Google grows its revenues (whetheror not it also charges merchants a commission for anyresultant sales).On the flipside, every timeGoogle directs a user to someone else's price comparison service it is forgoing

those revenues, aswell asany further opportunities to extract revenues from that user's visit. By contrast,the incentivefor

asupermarketto favour

its own brandsmay be less acute, because

a supermarket makes a profitfromeveryone else'sbrands as well as its own.

nine out of every ten shops, but because nine out of every ten customers consistently chooseto shop there.

Just as Googletriestobrush-off

allmonopoly scrutiny with the

specious

observation

that

itscompetition"is just a click away",our

similarly dominant supermarket

could do the same.

It couldpoint outthat its customers have a choice, because competing supermarkets are "just a few stepsaway".

The point

thatbothour dominant supermarket and Google

would prefer people not to notice

is that theybothoperate in two-sided markets: while consumers

may have a choice, the

brands,suppliers, and websites

do not.

As long as nearly all consumerscontinue tochoosethe

dominantsupermarket

andsearch engine, all

ofthebrands, suppliers, and websites

have no viable alternativeby which to reach them.

For example, if everyone shops at Safeway, and Safeway decides to no longer stockAcme Cola, thenAcme Colais likely to go out of business.

The fact thatAcme Colawould still be available in all of theother supermarket chains is clearly immaterial if nobody shops there.

The Supermarket Equivalent ofExclusionary "Penalties"

for Emerging Brands

Just as Google cannot exclude well known brands like Amazon without users noticing, our dominantsupermarket cannot remove well-known brands

like Coca Cola from itsshelves without risking amass defection of customers to rival

supermarkets. But, if it wants to,

it can terminally disadvantagea new emerging brand

that no one has yet heard of, either

by refusing to stockit, or by placingit

somewherewhere few

will ever find

it.

This is broadly equivalent to Google’s ability to neutraliseemerging vertical search competitors through exclusionary penalties.

Toextendthe analogy further, when challenged, our supermarket could try to justify its actions bypointing out characteristics of the "penalised" products that sound bad but are often the reason thatpeople want them, such as ahigh sugar content.

This would be broadly equivalent to Google's bogusPage13

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lack-of-original-content

anddriving-traffic-to-other-sites

charges. For the analogy to be trulycomparable, the challenger would also need either nottonotice or not be soboldas to point out themany equallysugary products

that remain "un-penalised" on the supermarket'sshelves—including

all ofthe supermarket's own

brands.

The Supermarket Equivalent of"Universal Search" (Self-Preferencing)

To make significant inroads against the more established brands that it cannot so easily remove, oursuper-dominant supermarket could give disproportionately prominent placementand shelf space toits own-brand products and

also

use exclusive and particularly enticing displays

for them.Of course,to a certain extent, all supermarketsroutinely

use

thiskind of self-preferencing.

Although

broadly equivalent to Google’s Universal

Search mechanism,our

supermarket’s self-preferencing

cannot

achieve anything approaching the sameanti-competitiveimpact.

All brandswork hard to make their packaging as distinctive and instantly recognisable as possible,

so that theystand out and getnoticed wherever they are on the shelf.

But none of this brandingisvisible

in thegeneric

("10 blue links")

environment of a Google search result page, whereeverything is a uniformblue link,

except, of course,

for the "UniversalSearch"links

pointing

to Google's own services.

The Supermarket Equivalent ofGoogle'sRecent"Panda" Update

In many cases, theaboveanti-competitive

techniques

would only be partiallyeffective:

manycustomers would overcome these obstaclesandcontinue to buy particularly strong brands like CocaCola. For these situations, our super-dominant supermarket could deploy a new, even moreaggressive, strategy (perhaps codenamed “Panda”).

Under the pretext of concern for the health of its customers,the

supermarket could remove most

sugary drinks, including Coca Cola, from its shelves (or place them somewhere well beyond the reachof most customers). At the same time, and without offering any explanation for the apparenthypocrisy, it could leave its own equally sugary products in place, along with a few other well-knownbrands such as PepsiCola(perhaps as part of a broader divide and conquer strategy).

In order toavoid the possibility of a mass customer defection,the

supermarket could continue to provide CocaCola and other well-known brands to any customers who specifically ask forthem

by name.

There Are No Super-Dominant Supermarkets

Fortunately for consumers,

and for the thousands of brands and suppliers that compete for theircustom, nothing approaching Google's level of dominance existstodayamong

supermarkets.

Themarket shares of the world's leadingsupermarkets

pale next to Google’s 85% share of the globalsearch market.The leadingUK and USsupermarkets, for example–Tesco in the UK and WalMart inthe US–have justa30%and 20%share of their respective markets.

Any anti-competitive practices by supermarkets are thereforeconstrainedand

moderated by thenaturalmarket

forces ofcompetition.

Even so,throughout the world, supermarkets areroutinelysubjected

to regulatory scrutiny.

Yet,the

suggestion that someonemight want totake

a look atGoogle (whose

anti-competitivepractices

are not constrainedor moderatedby the market forcesofhealthy competition, and whose

potential for abusefarexceeds that of a

supermarket)is often metwithalevel ofderision

as

fervent as it is inexplicable:for example,

Page14

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“It’s insane. It really is.”Danny Sullivan,

The Incredible Stupidity Of Investigating Google ForActing Like A Search Engine, November 30 2010

Conclusion

As we have seen,Google’santitrust issues

have nothing to do with“bigis

bad”

or with whether ornot Google achieved its search monopoly through lawful means. Nor are